Thursday, May 22, 2008

Goldman Internet: Google: New Sources Of Ad Growth; Mobile Complements Desktop; No Cash-Back Plans

Google’s (NSDQ: GOOG)
growth rate and all that entails—click through rates, query growth, ad
quality, etc.—continues to be the subject of a lot of disagreement and
debate. Q1 turned out solid, but there’s not going to be a letup in the
key question facing the company: are its heady growth days done for?
Speaking at the Goldman Sachs Ninth Annual Internet Conference, Nick
Fox, Director of Business Product Management at Google tried to to pull
back the thicket: “There are significant opportunities across the
board. “He ticked off four drivers of revenue: query volume, ads per
query, quality, price per lead, and noted for example that many queries
still don’t have ads running against them: ”A small portion of our queries have ads… we see that as a pretty significant opportunity.”
The challenge is to convince advertisers that they could be making
money by bidding on more keywords than they are. Other opportunities
include helping companies improve the quality of their landing pages
(so they get more value from their ads) and rethinking the ads that go
next to each query. Fox’s example: (NSDQ: AMZN) ads for the book Harry Potter don’t generate many clickthroughs because searchers often are looking for something other than the book itself.

-- Social networks: “What I would say on social networks…
the whole industry has been surprised at the difficulty of monetizing
social networks.” “We found it more challenging than we expected it
would be.” The difference: “On search you have this amazing thing: the
query… on a social network, you don’t really know (what the user is
looking for).” Other problems: users are doing a lot of non-commercial
things on social networks (he mentioned throwing sheep and playing
Scrabble). Those who are making money: “scummy things” like pyramid
schemes and things that trick users into downloading ringtones.

-- Mobile: “Mobile is much more similar to search than a
social network is… mobile actually monetizes quite well.” New devices
are key: iPhone users search at a rate of 50x normal users. Also, on
mobile, there’s high volume on weekends and days when volume is low on
desktop. So the mobile business complements the core business.

-- DoubleClick: Neal Mohan, Director of Product Management
for Ad Serving Platforms, discussed how DoubleClick (Mohan came in via
the acquisition) would complement the core business. The main goal:
more choice. Through the integration, Google can help publishers figure
out how best to monetize a page, whether it’s through text or display…
though the primary focus is on bringing more monetization choices to
publishers on the display side.

-- Microsoft’s (NSDQ: MSFT) cash back: Fox: “A lot of demand from advertisers to advertise on a CPA basis.” For consumers: ”No
plans to pay users to use our products… our fundamdental belief is that
we should compete by building a great user experience.... that’s the
focus, rather than paying users nickels and dimes.

-- User targeting: Not focused on building up profiles of
users for better ad serving. But there are opportunities to improve
yield by looking at query patterns. For example: If you search for
‘Italy Vacations’ and then search ‘weather’ you can improve yield on
the latter search by taking into account the former.

-- Google’s apex: A questioner (representing investors)
wanted to know about the talent issues and whether we’d seen Google’s
corporate apex (arguably the biggest question there is): “We’ve seen
extremely low turnover and churn in employees… they tend to get a lot
of attention cause it’s Google.” Reality: level of churn is actually
low. Mohan: No key DoubleClick employees have left.

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